Wages of inconsistent policies

July 03, 2022

The current government assumed power with a commitment to address the economic issues without putting an extra burden on the common man. However, it has failed to introduce any reforms and offer any relief to the public

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fter the economic mismanagement and inconsistent policies during the four years of Pakistan Tehreek-i-Insaaf (PTI), the people of Pakistan were expecting a realignment on the economic front with a strategic direction towards sustainable growth where new avenues for revenue generation could be explored with the offer of relief for those already burdened with heavy taxation. Undoubtedly for any government yearning to provide socio-economic protection from increasing inflation to its people, presenting a balanced fiscal plan while the global lender is pushing hard for revocation of fuel and energy subsidies and imposition of new taxes, can be highly challenging.

Pakistan’s economic difficulties are increasing with each passing day. The current government assumed power with a commitment to address the fiscal issues without putting an extra burden on the common man. However, after assuming office in April 2022, it has failed to introduce any reforms and offer any relief to public. The value of Pakistani rupee is on a downhill slope. It is now hovering around Rs 206 to the dollar. In a very limited span of time, fuel prices have increased by more than Rs 80 per litre and the finance minister indicated that another price hike is expected in the upcoming month. Despite tall claims, the menace of load shedding has resurfaced and remains unresolved although Shahid Khaqan Abbasi, in a press conference with other federal ministers, had claimed that load shedding would be reduced to 3-5 hours. This is mostly on account of mismanagement in LNG procurement by the previous government and the prime minister has warned of increased load shedding in July.

The available budget documents assign a revenue target of Rs 7,004 billion and in absence of any proposed administrative measures for capacity enhancement at the Federal Board of Revenue this seems to be an ambitious target. However, the draft money bill presented on June 10 was appreciated by various segments of society calling it as a balanced document offering new avenues for broadening the tax base by introducing taxation on deemed rental income with the aim to tax the privileged class owning more than one property valuing Rs 25 million. The budget document also proposed imposition of a new 2 percent ‘poverty alleviation tax’ on persons earning more than Rs 300 million. It also proposed relief for salaried class by lowering tax rates.

The last four years have been eccentric in terms of budget presentation, as the National Assembly floor witnessed a new finance minister every year. However, unfortunately all the finance bills were of an ad hoc nature and failed to deliver the objective of revenue generation, growth and relief to common man. Previously, finance bills were followed by supplementary acts, in almost each quarter, that burdened people with a range of new taxes but this time a significant change was observed at draft level.


The available budget documents assign a revenue target of Rs 7,004 billion and in absence of any proposed administrative measures for capacity enhancement at the Federal Board of Revenue this seems to be an ambitious target.

Pakistan is facing an acute foreign exchange crisis. It is finding it difficult to bridge the gap between its foreign receipts and payments. Pakistan is desperately looking towards global lenders and friendly countries to extend a helping hand to avert default. At this critical juncture, the mismanagement and shortsightedness of previous PTI government has come to haunt us. The government had breached commitments and undertakings given to the International Monetary Fund for fiscal reforms disguising the same under their so-called “smart economic management” and benevolence towards public. However, as a matter of fact they had been fast digging a blackhole for the national economy. This is a perfect case where incompetence coupled with lack of vision created a mess that could have been avoided. In this backdrop, economic experts were not very optimistic about any negotiation room left with Pakistan while dealing with the IMF. Accordingly, the latest review resulted in halt of the EFF programme and its resumption was tied with strict economic measures.

Due to uncertainty and an unstable economic situation, the global financial institutions are cautious about doing business with Pakistan. Further, the central bank has taken aggressive measures to restrict outflow of foreign exchange. These steps are negatively impacting the overall business confidence in Pakistan. Now with fast eroding foreign exchange reserves, the government is left with very limited time and needs to act fast for resumption of the IMF programme. However, in its pursuit for funds it seems that the government has completely overlooked its prime objective of socio-economic protection of its citizens. The government’s economic team is willing to take any action to please the IMF without taking cognizance of its effects on the life of the common man and the economic environment of the country.

The finance minister in his parliamentary speech on June 24 announced new revenue measures including imposition of 10 percent “super tax” on cement, steel, sugar, oil and gas, fertilisers, LNG terminals, textile, banking, automobile, cigarettes, beverages, chemicals and airlines. Earlier in the budget, a 2 percent poverty alleviation tax was announced on persons with annual income exceeding Rs 300 million. The finance minister announced revising this to 1 percent for income exceeding Rs 150 million but less than Rs 200 million, 2 percent for those whose income exceeds Rs 200 million but is less than Rs 250 million, 3 percent for those whose income exceeds Rs 250 million but is less than Rs 300 million and 4 percent where income exceeds Rs 300 million.

These new measures came as a surprise for the businesses and other stakeholders, that are calling these “anti-business” and predicting increased un-employment and inflation. The finance minister tweeted: “Just to clarify: the super tax of 4 percent will be applicable to all sectors. But for the specified 13 sectors, another 6 percent will be added for a total of 10 percent. So, their tax rates will go from 29 percent to 39 percent. This is a one-time tax needed to curtail the previous four record budget deficits.

The government has taken a step-back from relief earlier proposed for the salaried class to appease the IMF. Rather than looking for new avenues to generate revenue and for adoption of modern techniques, the government has reverted to old tactics. This is an attempt to further squeeze the corporate sector and salaried class who are already acquainted with their national duty and are compliant with tax regulations. The inconsistent decision making reflects badly on the economy and is damaging the government’s credibility.


Dr Ikramul Haq, Advocate Supreme Court, is adjunct faculty at Lahore University of Management Sciences (LUMS), member of the Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in White Collar Crimes and Sanctions Compliance. They have recently coauthored a book, Pakistan Tackling FATF: Challenges and Solutions, with Huzaima Bukhari



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